Compute probability of hedging

Reference no: EM1360148

Jones Company needs 200,000 Canadian dollars (C$) in 90 days and is trying to determine whether or not to hedge this position. Jones has developed the following probability distribution for the C$:

Possible Value of C$ in 90 Days Probability

$0.54 15%
$0.57 25%
$0.58 35%
$0.59 25%

The 90-day forward rate of the C$ is $0.575, and the expected spot rate of the C$ in 90 days is $0.55. If Jones implements a forward hedge, what is the probability that hedging will be more costly to the firm than not hedging?

a. 40%.
b. 60%.
c. 15%.
d. 85%.

Reference no: EM1360148

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